Shenwan Hongyuan Group: Public funds focus on technology hardware in the first quarter, increase allocation to the energy security industry chain.

Shenwan Hongyuan Group pointed out in the analysis of the shareholding of active equity mutual funds in Q1 2026 that in the first quarter of this year, public funds focused on industry trends and strong performance realization in the technology hardware sector. Holdings in the communication sector and the overweighting multiple continued to break historical highs, while the electronics sector experienced a high-level pullback. In addition, after the Spring excitement, under the geopolitical impact in March, assets related to energy security were given more attention and increased positions. The advantage of China's manufacturing sector is highlighted, and new energy sources that are gradually gaining global competitiveness have been increased in position, particularly in the direction of batteries and grid equipment. Key points from Shenwan Hongyuan Group are as follows: 1. Characteristics of active equity fund industry allocation: focus on technology hardware, increased allocation in the energy security industry chain. In Q1 2026, active equity mutual funds increased allocation in pharmaceuticals, manufacturing (power equipment/mechanical equipment), and cyclical (basic chemicals/petrochemicals/coal/transportation) industries; while decreasing allocation in electronics/non-ferrous metals/media/appliances/automobiles/retail and trade. Technology hardware continued to be the focus, with holdings and overweight multiples in the communication sector reaching historical highs, while the electronics sector saw a high-level pullback. 1) In Q1 2026, public fund holdings focused on industry trends and strong performance realization in the technology hardware sector. The proportion of holdings in the communication industry increased by 1.9 percentage points to 13.1%, with a configuration coefficient of 3.34 times ranking first among industries, both indicators breaking historical highs. The configuration coefficient of the components of the Wande Guang communication theme index also continued to rise to over 5 times. Although the holdings in the electronics industry continued to slightly decrease to 21.7% from the previous quarter, it still ranked first among all industries, with the configuration coefficient falling to 1.87 times, at the 56th percentile historically. Among the top ten heavyweights, Zhongji Innolight, Contemporary Amperex Technology, and Eoptolink Technology Inc. ranked in the top three. 2) The overall proportion of TMT holdings remained at 37% in Q1 2026, with little change from the previous quarter, but still higher than the peak in 2015 during the internet boom (about 30%) and the peak in new energy holdings in 2022. Holdings in media and computers were at 1.0% and 1.5% respectively, at historic lows and continued to be reduced. 3) Looking back at history, when the holdings in a single industry approach or exceed 20%, they often oscillate at high levels for 2-5 quarters, not necessarily immediately falling back, possibly showing increased stock price volatility within quarters and faster rotation of sub-sectors. In addition, the high holdings often coincide with or slightly precede the peak in stock prices, while the peak in industry fundamentals usually lags behind by 1-3 quarters. In the short term, the focus and diffusion process of the AI industry chain is expected to continue under momentum, and in the second half of 2026, attention should be focused on industrial capital trends. Increased allocation in the energy security industry chain, both new and traditional energy sources saw an increase. After the Spring excitement in Q1 2026 and the geopolitical impact in March, assets related to energy security received attention and increased positions. The new energy sources that gradually gained global competitiveness and the advantageous position of China's manufacturing industry saw an increase in position, with the proportion of power equipment holdings increasing by 1.3 percentage points to 12.8% compared to the previous quarter, and the configuration coefficient slightly rising to 1.6 times, with significant increase seen in holdings in batteries and grid equipment. In the past, the traditional energy sources which were consistently underweighted, the configuration coefficient for basic chemicals increased by 0.2 to the standard level, while the holdings in petrochemicals and coal increased by 0.6 and 0.3 percentage points respectively to 1.2% and 0.7%, with the configuration coefficient increasing to 0.33 and 0.35, still significantly underweighted. Certain banking and real estate chain varieties also saw a slight increase in holdings. Holdings in banks, real estate, steel, and construction and decoration increased by 0.1 percentage points. Steel sector benefited from the expectation of a turnaround in fundamentals, with a configuration coefficient reaching 0.52 at a historical 97th percentile. Building materials benefited from the growth attributes of fiberglass and expectations of clearing out some traditional construction materials, with the proportion of holdings increasing by 0.2 percentage points to 0.9%, and the configuration coefficient increasing by 0.12 to above the standard level. Marginal increase in holdings in the pharmaceutical and biotech sector, as a sector heavily influenced by industry/themes funds, the holdings in the pharmaceutical and biotech sector in Q1 2026 excluding obvious industry/theme funds were at 4.2%, at the 3.1st percentile historically, while the holdings in pharmaceuticals for all funds were at 8.5%, at the 4.6th percentile historically. Excluding obvious industry/theme funds in Q1 2026, the configuration coefficient for pharmaceuticals and biotech was at 0.72 times at the 4.6th percentile historically, while for all funds it was at 1.46 times, at the 9.3rd percentile historically. Looking at the secondary segment, the first quarter saw increased holdings in other biological products/medical research outsourcing/medical consumables, while there were reductions in holdings in vitro diagnostics/raw materials/chemical agents/medical equipment. Reductions were concentrated in non-ferrous metals, consumer goods (appliances/alcohol/beverages and dairy products), and non-bank financial institutions. 1) Non-ferrous metals: Due to the accelerated inflow of passive funds in the past, leading to increased crowding, and rising global inflation expectations due to geopolitics, metal prices were impacted by liquidity, with holdings falling by 1.1 percentage points to 7.0% in the first quarter, and the configuration coefficient reaching 1.41 times, still at a historical high. 2) Consumer goods: The durable consumer goods sector, such as household appliances, automobiles, and light industry manufacturing, which saw overconsumption of demand, received reductions in holdings, with the proportion of holdings falling to 1.9%, 4.1%, and 0.5% respectively, with configuration coefficients for appliances and automobiles at 1.09 and 1.08, close to the standard level, while the configuration coefficient for light industry manufacturing was at 0.52, still at a historically low level. 3) Food and beverages: Adjustments in the food and beverage sector accumulated over 21 quarters to 4.2% in Q1 2026, with white liquor holdings at 3.4%, both close to the one-time standard. Excluding industry themes, holding proportions for the food and beverage and white liquor sectors for all fund samples were at 3.5% and 2.6%, 0.7 and 0.8 percentage points lower respectively, indicating an underweight position. Marginally, within the food and beverage sector, there was some differentiation, with significant reductions in holdings and configuration coefficients for beverages and dairy products, reaching historical lows of 0.2% and 0.42, while holdings in food processing/flavor fermentation products/snacks increased. 4) Non-bank financial institutions: Holdings dropped by 0.9 percentage points to 1.5%, with the configuration coefficient falling to a historical low of 0.27, mainly due to reductions in holdings in insurance, with a decrease in proportion by 0.6 percentage points to 1.0%. 2. Performance of net assets and liabilities in active equity funds: With the gradual return of the money-making effect and the reduction of net redemptions in the first quarter of 2026, the importance of active management capability has been enhanced, indicating that funds are likely to enter a positive cycle. On the whole, there was a slight reduction in the holdings of active equity funds in Q1 2026, with the equity position falling by 1.3 percentage points to 83.1%. The median return rate of active equity funds since the beginning of 2026 was 6.7%, with significant differences in individual stock returns, with a median return rate of less than 1%, and an over 51% positive return rate for individual stocks, indicating that public funds continued to slightly outperform individual stocks. Compared to the broad index, active equity funds had higher median return rates since the beginning of the year and since the rebound from the market low on March 23, outperforming the Shanghai market and the CSI 300, but were weaker compared to the ChiNext index, the ChiNext 50, the CSI 1000, the CSI 2000, and the CSI 500 in both intervals. Since Q3 2024, the tech market has been running for about 1.5 years, with the median return of active funds rising by over 60%, but the time and space have not yet reached historical highs (historically, market cycles have been around 2 years, with the median return rate of public funds reaching over 200%). Looking at the liabilities side, in Q1 2026, active equity funds saw a net increase in shares for the first time in three years. Specifically, in Q1 2026, active equity mutual funds issued 111.8 billion shares of new funds, redeemed 46.5 billion shares of existing funds, resulting in a net increase of 65.3 billion shares in the quarter, the first positive growth since 2023. In terms of sectors, in Q1 2026, the configuration coefficients for various listed boards remained relatively stable, with the proportion of stocks held in the main board at 52.1%, ChiNext at 19.8%, and the Science and Technology Innovation Board at 14.1%. Holdings in Hong Kong stocks continued to decline, with the configuration of companies connected to the Hong Kong Stock Exchange falling by around 2.4 percentage points to 13.9% compared to Q4 2025. 3. Comparison with other funds behavior: leveraged funds, fixed income +, and passive ETFs. In the first quarter, there was differentiation in the reallocation behaviors of different fixed income + products, with outflows in broad ETFs and activity in industry-specific ETFs; since April, leveraged funds have been active, reducing holdings in ETFs at higher levels. Leveraged funds represented by financing positions saw a net inflow in the first quarter, with a retreat after a peak, outperforming historical seasonal trends since April, with cumulative net purchases exceeding 160 billion yuan since the beginning of the year. In terms of industry orientation, leveraged funds resonated with active equity funds, with a common focus on electronics, power equipment, and communication, and since April, the percentage of science and technology financing balance has once again accelerated, reaching over 31%. In Q1 2026, the equity holdings of fixed income + funds continued to rise, exceeding 370 billion yuan, with a slight decrease in median position levels for all products, but an overall increase in legal equity positions by 0.6 percentage points to 10.6% compared to Q4 2025. Industries with increased allocation included power equipment and communication, with reductions in electronics and non-ferrous metals. Considering that the results of calculations based on industry penetration may be affected by both broad-based ETFs and industry-specific ETFs, we have separately analyzed the ETFs represented by these two types of funds. In the first quarter, there were net outflows in broad-based ETFs such as the CSI 300, CSI 1000, and Shanghai 50, while industry-themed ETFs under standard industry labels saw net inflows in sectors such as non-ferrous metals, electronics, power equipment, and basic chemicals. Since the market rebound in April 2026, ETF funds have continued to see small net outflows, with a focus on reducing positions at high levels, and looking at individual stock weights within industries, there were higher net outflows in electronics, computers, power equipment, non-banking financial institutions, communication, and non-ferrous metals in the past month. 5. Risk Warnings: 1) Public funds, margin funds, and other funds constitute only a part of the market and may not be fully representative; 2) Fund quarterly report data may have time lag; 3) The analysis in this article is based on the top ten heavyweights stocks disclosed in the fund quarterly reports, which may have some errors compared to all fund holdings.